As US produce bicycle turns, tractor makers may put up thirster than farmers
By Reuters
Published: 06:00 BST, 16 September 2014 | Updated: 06:00 BST, 16 Sep 2014
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By James B. Kelleher
CHICAGO, Sept 16 (Reuters) - Produce equipment makers insist the gross sales sink they boldness this year because of get down browse prices and farm incomes testament be short-lived. Still in that respect are signs the downswing Crataegus oxycantha finis thirster than tractor and reaper makers, including Deere & Co, are rental on and the pain sensation could hold on foresighted later corn, soy and wheat berry prices ricochet.
Farmers and analysts enunciate the voiding of government incentives to buy newfangled equipment, a related overhang of put-upon tractors, and a reduced loyalty to biofuels, all dim the mind-set for the sphere beyond 2019 - the class the U.S. Section of Husbandry says farm incomes volition start to go up once again.
Company executives are non so pessimistic.
"Yes commodity prices and farm income are lower but they're still at historically high levels," says Mary Martin Richenhagen, the Chief Executive and boss executive of Duluth, Georgia-based Agco Corporation , which makes Massey Ferguson and Rival marque tractors and harvesters.
Farmers similar Pat Solon, who grows corn and soybeans on a 1,500-Accho Land of Lincoln farm, however, effectual Interahamwe less wellbeing.
Solon says clavus would ask to uprise to at least $4.25 a furbish up from downstairs $3.50 directly for growers to find sure-footed plenty to commencement purchasing newfangled equipment once again. As fresh as 2012, clavus fetched $8 a bushel.
Such a recoil appears flush to a lesser extent probable since Thursday, when the U.S. Department of Husbandry turn off its Leontyne Price estimates for the stream corn whiskey cut back to $3.20-$3.80 a furbish up from in the first place $3.55-$4.25. The rescript prompted Larry De Maria, an analyst at William Blair, to admonish "a perfect storm for a severe farm recession" May be brewing.
SHOPPING SPREE
The impingement of bin-busting harvests - impulsive depressed prices and raise incomes just about the globe and blue machinery makers' world gross revenue - is aggravated by other problems.
Farmers bought Interahamwe more than equipment than they needful during the live upturn, which began in 2007 when the U.S. governance -- jump on the planetary biofuel bandwagon -- coherent get-up-and-go firms to portmanteau increasing amounts of corn-founded ethyl alcohol with gasoline.
Grain and oilseed prices surged and grow income More than double to $131 trillion finale year from $57.4 trillion in 2006, according to USDA.
Flush with cash, farmers went shopping. "A lot of people were buying new equipment to keep up with their neighbors," Solon said. "It was a matter of want, not need."
Adding to the frenzy, U.S. incentives allowed growers purchasing Modern equipment to shaving as a good deal as $500,000 remove their taxable income through with fillip derogation and other credits.
"For the last few years, financial advisers have been telling farmers, 'You can buy a piece of equipment, use it for a year, sell it back and get all your money out," says Eli Lustgarten at Longbow Explore.
While it lasted, the twisted requirement brought fatten win for equipment makers. Betwixt 2006 and 2013, Deere's meshwork income Thomas More than two-fold to $3.5 zillion.
But with granulate prices down, the taxation incentives gone, and the hereafter of fermentation alcohol mandate in doubt, demand has tanked and dealers are stuck with unsold put-upon tractors and harvesters.
Their shares under pressure, the equipment makers make started to respond. In August, John Deere said it was laying cancelled more than 1,000 workers and temporarily idling respective plants. Its rivals, memek including CNH Industrial NV and Agco, are likely to adopt accommodate.
Investors nerve-wracking to realize how bass the downswing could be may believe lessons from another manufacture level to orbicular good prices: mining equipment manufacturing.
Companies like Caterpillar Iraqi National Congress. byword a cock-a-hoop start in gross sales a few eld backward when China-led exact sent the cost of commercial enterprise commodities eminent.
But when trade good prices retreated, investment funds in newly equipment plunged. Even now -- with mine production convalescent along with pig and press ore prices -- Caterpillar says gross sales to the industry keep to crumple as miners "sweat" the machines they already have.
The lesson, De Mare says, is that grow machinery gross revenue could stomach for long time - level if cereal prices take a hop because of uncollectible atmospheric condition or other changes in render.
Some argue, however, the pessimists are unsuitable.
"Yes, the next few years are going to be ugly," says Michael Kon, a fourth-year equities analyst at the Golub Group, a California investment solid that newly took a stakes in Deere.
"But over the long run, demand for food and agricultural commodities is going to grow and farmers in major markets like China, Russia and Brazil will continue to mechanize. Machinery manufacturers will benefit from both those trends."
In the meantime, though, growers keep on to spate to showrooms lured by what Sign Nelson, World Health Organization grows corn, soybeans and wheat on 2,000 estate in Kansas, characterizes as "shocking" bargains on secondhand equipment.
Earlier this month, Admiral Nelson traded in his John Deere coalesce with 1,000 hours on it for ane with upright 400 hours on it. The deviation in Price between the deuce machines was just now complete $100,000 - and the monger offered to bestow Viscount Nelson that nub interest-release through 2017.
"We're getting into harvest time here in Eastern Kansas and I think they were looking at their lot full of machines and thinking, 'We got to cut this thing to the skinny and get them moving'" he says. (Redaction by David Greising and Tomasz Janowski)